filing 1065 - claiming deductions with no income yet

[Andrea O.]

Hi everyone. I'm hoping to get some guidance from tax professionals in the BP community since I'm a bit stuck. I'm working on my 1065 for a two-member LLC. We established the entity and purchased our first property in July 2018. The renovations are now complete and we'll be putting the building into service this month.

I sought the help of a CPA.  He told me not to file at all since we had no income and the IRS wouldn't be happy if we claimed deductions without rental income.  I'm worried about not filing at all, so I'll at least file and generate K-1s with all zeros.

Questions:  

Should I claim startup costs and the costs to establish the entity, but not the cost to acquire the property for 2018?

What about money I paid to contractors?  The entity issued 1099s.  Is it a problem if I include the 2018 1099 payments on the 2019 return as part of the capital improvements put into service in 2019?  

It seems strange to hold 2018 expenses and not report them until next year, but is this correct in order to match them to revenue?  If so, in doing so, would the entity still be filing using cash-based accounting?

Thank you so much for your help!  

[Linda Weygant]

Sometimes the IRS will send an inquiry letter to ask why no tax return was filed.  You just reply back that there was no income and/or expenses.

However, I have not seen one of these letters in well over 5 years.  It could be the IRS stopped sending them out for entities without a filing history.

However, once you start filing tax returns, you do need to KEEP filing, even with zeros, until you close down the entity.